Rising Medicare Costs Will ‘Substantially Increase the Strain’ on U.S. Workers

By Barbara Hollingsworth | August 7, 2014 | 11:23 AM EDT


(AP photo)

(CNSNews.com) – Total Medicare expenditures “will increase in future years at a somewhat faster pace than either aggregate workers’ earnings or the economy overall,” according to the latest annual report of the program's trustees.

(See 2014 Medicare Trustees Report.pdf)

Outlining three possible scenarios for the future of one of the nation’s largest safety-net programs, the Medicare trustees concluded: “Growth under any of these scenarios…would substantially increase the strain on the nation’s workers, the economy, Medicare beneficiaries, and the Federal budget.”

In 2013, Medicare spent $583 billion to cover 52.3 million elderly and disabled people. But the cost of the program is expected to double from the current 3.5 percent of the nation’s Gross Domestic Product (GDP) to 6.9 percent or possibly as high as 8.4 percent by 2088, the trustees reported.

Medicare’s long-term financial problems have long been the topic of discussion, but not action, on Capitol Hill. The program’s long-term unfunded liabilities are estimated at at least $28 trillion over the next 75 years even as Social Security faces its own $23 trillion fiscal gap.

“Lawmakers could address the long-term financial imbalance…Note, however, that these changes would require an immediate 30-percent increase in the standard tax rate or an immediate 19 percent reduction in expenditures,” the trustees’ report states.

On July 28, Treasury Sec. Jacob Lew announced that Medicare's Hospital Insurance Trust Fund will be depleted in 2030, “four years later than projected in last year’s report.” Lew attributed the four-year reprieve to “lower than expected spending in 2013” under the Affordable Care Act (ACA).

But health care analysts say that short of a major overhaul by Congress, the retirement of 78 million baby boomers will inevitably create an unsustainable drag on the entitlement program.

“A four-year delay in Medicare trust fund insolvency and a temporary relief from annual cash deficits in the trust fund does not remotely indicate that the program is approaching financial stability,” write Robert Moffit and Alyene Senger at the Heritage Foundation’s Center for Health Policy Studies, pointing out “the program’s most fiscally significant metric: Medicare’s enormous long-term debt, on the most realistic assumptions, currently ranges between $28 trillion and $35 trillion”.

“The trustees are basically tasked with projecting Medicare expenses based on current law” including the ACA, explained Devon Herrick, senior fellow at the National Center for Policy Analysis (NCPA).

“Well, beginning about four years ago, when Rick Foster was still the chief actuary of Medicare, he explained at the very end of the trustees’ report that some of the assumptions in the report were not realistic. For example, the fee cuts to Medicare physicians and hospitals that treat Medicare patients. If they were to do that, a lot of seniors would lose access to care, a lot of hospitals would close or become insolvent.”

“Fast-forward to the most recent report, and instead of being buried in the appendix, the trustees actually, beginning on page two, discuss that some of the assumptions in the report may not occur. It’s just about the first time that they were being straightforward and candid about the projections,” Herrick told CNSNews.com.

“So on the one hand, you have the cheerleaders at CMS [Centers for Medicare and Medicaid Services] saying how great things are, and then you have the trustees putting in the very, very front, almost in the introduction, that oh, by the way, some of the rosy picture we’re seeing here many not come to pass. That was significant, in my opinion.”

“The bottom line is if all the above doesn’t happen like the Affordable Care Act assumes it will occur, the percentage of GDP being spent on medical care in 2088 will be 50 percent higher than the current law projection,” he added. “So we’ll be in a lot worse shape."

"I mean, sooner or later, something’s gotta give, and that’s in plain English,” he added.

“Currently we spend about 3.5 percent of GDP on Medicare. Of course, for health care in general, it’s pushing 18 percent of GDP. Well, in the next 60 or 70 years, the projection, unless something has changed, would be that we’ll be spending around 8.4 percent of GDP just on Medicare, and we can assume if the proportion of money we spend on Medicare rises, more than doubles, then we would experience some jump in other health care spending as well.”

“So whether that’s 25 percent or 30 percent of GDP, I mean, it’s already amazing that we’re spending close to one in five dollars on health care. Just imagine all the technology that’ll be invented and developed in the next 70 years.”

“So our choices are just overtly ration care, which of course, price rationing is what we use at the grocery store, it’s a market rationing mechanism, or we let consumers have a say in how their own care is rationed, because we all pay for it indirectly.”

“Or we’ll gonna just merely devote a bigger share of our standard of living to medical care. And there’s pretty much really only three choices.”

“We’re currently spending just shy of one in five dollars on medical care. If you’re talking about one in four dollars or even approaching one in three dollars 50 years from now, it definitely crowds out other areas of consumption,” Herrick added.

New Medicare enrollees are already having a hard time finding primary care physicians who will accept government reimbursements below the cost of providing the service, he noted, and reducing them even further will make the access problem even worse.

“You’ll have free care, but a hard time finding someone to treat you.”